July 12, 2017 - By The Real Reporter with Cushman & Wakefield Market Research

BOSTON—Cushman & Wakefield recently released its mid-year MarketBeat research that tracks the performance of the commercial real estate market in Boston, Cambridge, and the suburbs.

For the second consecutive quarter, absorption in Boston was negative, but asking rents are still rising. Most available properties have come on the market because tenants seek to relocate to new construction. The supply of available space is becoming much larger than the demand in some markets though and the performance of asking rents does not reflect current conditions, a trend gaining importance lately.

Unlike Boston, the availability of commercial space in Cambridge has been falling. As a result, rents keep rising. Nevertheless, several key deals took place this quarter. Namely, Momenta Pharmaceuticals and Synlogic filled Ironwood’s space at 301 Binney Street and GlaxoSmithKline committed to 42,000 SF at 200 Cambridgepark Drive.

Commercial deals in the suburbs remain frequent with new construction and the migration of life science activity out of the city. The opening of 490 Arsenal Way in Watertown played a significant role this quarter for firms struggling to find affordable space in Cambridge. Simultaneously, Wave Life Sciences moved into a recently completed 95,000 SF lab building at 115 Hartwell Avenue in Lexington.

Boston

According to the report, Boston ended the quarter with 84,278 SF YTD, making it the city’s second consecutive negative quarter. Although Amazon will soon occupy 253 Summer Street and Reebok will lease 21-25 Drydock Avenue, there are still a significant number of firms relocating for new construction. Cenage Learning, Boston Consulting Group, Sapient, and Partners Healthcare have all left their previous office spaces on the market.

Even though asking rents seemed to be leveling off last summer, it has become clear that they will continue to rise. The most growth has occurred in the Financial District where rents increased by 6.0% in the past 6 months to $57.72 PSF. This trend may not last long though in the Financial District. Financial service firms have reported that SEC regulations and a shift from actively managed funds to passively managed funds could mean a decrease in many finance jobs in the future. This trend will significantly impact the real estate market of the Financial District as firms downsize in the near future.

Cambridge

Office and lab vacancy rates grew slightly to 3.8% but the increase does not indicate worsening conditions. The rents for these markets continue to rise. Office rent has increased 2.0% to $68.52 PSF and lab rent has gone up by 4.5% to $69.21 PSF NNN in the past two months. Because of these vast rent increases, especially for the booming lab market, Cambridge tenants have begun looking to new construction options in the inner suburbs, such as 490 Arsenal Way in Watertown (LINX) and 80 Guest Street, Brighton (Boston Landing).

Suburbs

According to the report, combined office and R&D absorption totaled 717,500 SF year-to-date (YTD) in the suburbs, which is a significant increase from last year when absorption was 500,000 SF YTD. The most significant transaction affecting these numbers was Dana Farber’s 140,000 SF lease at 300 Boylston Street. After undergoing renovation in 2016, the former Atrium Mall is now an extension of the Longwood Medical Area. Other significant deals included Mimecast leasing 79,000 SF at 191 Spring Street in Lexington, Mitre occupying 44,000 SF at 201 Burlington Road, and Aspect Software claiming 30,000 SF at 5 Technology Park Drive in Westford. With more companies moving to the suburbs and the completion of new lab and office spaces at 490 Arsenal Way in Watertown and 80 Guest Street in Brighton in Q4 2016, asking rents in the Inner Suburbs have climbed 35% to $41.64 PSF over the past year.

Overall, the past quarter has been an interesting one as more office spaces come on the market in Boston and the low vacancies in Cambridge draw R&D firms out of the city to new lab construction in the suburbs. Rent in each market continues to rise, following the upward trend for the year.